Payday Loans: How to Fix Them
How much greed is enough? That’s the question legislators in Sacramento must ask the predatory loan industry – and themselves – when it comes to Assembly Bill 539.
AB 539 would bar the predatory lenders, like some payday loan companies, from imposing outrageous interest rates on people who borrow between $2,500 and $10,000. Currently, a person who takes a “high-cost installment loan” of over $2,500 can face triple-digit interest rates of 200 percent or more.
State law caps interest on installment loans below $2,500 at 36 percent. Unfortunately, some lenders have a strategy to evade the cap. By creating new financial products that require people to borrow a minimum of $2,500 in order to qualify, they can impose outrageous interest rates on larger loans.
“To pay back a $2,500 loan with a 200 percent interest rate, a borrower would repay nearly $10,000 over two years,” wrote Santa Barbara Assemblymember Monique Limón and Concord Assemblymember Tim Grayson, AB 539’s co-authors, in The Sacramento Bee.
Limón and Grayson estimate that more than 100,000 Californians a year get sucked into such loans. When they’re unable to keep up with the high interest payments, their credit gets destroyed. AB 539 would protect Californians by applying a 38 percent interest cap on loans between $2,500 and $10,000. If the bill passes, California would join the 38 other states that already ban outrageously excessive interest rates for loans like these.
Most people would never voluntarily take a loan with a 38 percent interest rate, much less one exceeding 100 percent. When you shop for a loan, you look for the lowest rate. But people with options are not the target market of the predatory loan industry. Financially-challenged people with no credit, low credit or bad credit tend to be its chosen victims. The poorest and most powerless people in society are exploited to the max and pushed further into financial distress.
Lauren Muntasir, a grandmother from Richmond, needed a $1,000 loan to fix her car transmission. Muntasir, who was profiled in a story about predatory lenders by CALmatters’ Ben Christopher, got pulled in by a high interest lender called LoanMe.
“State data shows that 99.7% of LoanMe’s loans between $2,500 and $9,999 carried triple-digit annual percentage rates in 2017,” according to CALmatters.
Muntasir “cried when she realized the total amount she would be expected to pay (she eventually defaulted). Even for those who understand the terms, the math of compound interest can be deceiving,” wrote Christopher.
The Obama Administration had moved to crack down on predatory loans nationally, but the industry is enjoying a resurgence under the Trump Administration – and for good reason. A recent ProPublica investigation revealed how payday lenders, seeking to curry favor with Trump, “have poured a total of $1 million into the Trump Organization’s coffers through the two annual conferences.”
In the meantime, the Trump Administration has moved to roll back the Obama Administration’s new rules for the lending companies – rules designed to protect consumers from predatory practices.
The cash infusions are a way of “reminding the president and the people close to him that they are among those who are generous to him with the profits that they earn from a business that’s in severe danger of regulation unless the Trump administration acts,” Americans for Financial Reform Executive Director Lisa Donner told ProPublica.
Trump’s not the only one benefiting from the selective generosity of the payday loan industry. After the California State Assembly resoundingly passed AB 539 by a vote of 60-4, the industry rushed to cut campaign checks to state Senators on the California Senate Banking and Financial Institutions Committee. The committee now controls the fate of AB 539.
Will campaign contributions harvested from the pockets of California’s struggling poor succeed in killing a bill designed to protect people from predatory interest rates? It’s up to you.
Make your voice heard by contacting these members of the Senate committee. Tell them to do what’s right for people, not for the predatory loan companies cutting suspiciously-timed checks to their campaigns:
▪ State. Sen. Steven Bradford, Chair: 916-651-4035
▪ State Sen. Ling Ling Chang, Vice-Chair: 916-651-4029
▪ State Sen. Anna Caballero: 916-651-4012
▪ State Sen. Ben Hueso: 916-651-4040
▪ State. Sen. Mike Morrell: 916-651-4023
▪ State Sen. Anthony Portantino: 916-651-4025